Wisconsin's business climate is improving

They don't have a candidate, but Democrats increasingly have a message for the 2014 gubernatorial race: Wisconsin is falling behind Minnesota, and it's Scott Walker's fault. Just minutes after learning of better economic news in Minnesota than Wisconsin in 2012, progressives took to their keyboards and began blaming "extremist" policies enacted in our state in the last two years, in prose so purple it could have been on a Vikings football jersey.

There is one big problem with this argument: Wisconsin has been falling behind Minnesota for a long, long time. In the economic arena, Paul Bunyan's ax was moved to Minnesota sometime in the 1980s, and it's never been in danger of being returned.

Jim Doyle understood this, because as a newly elected governor he signed his name to a 2002 Wisconsin Technology Council report (PDF) that warned of dire consequences if Wisconsin didn't change course in policy soon. That report noted that "in the last 10 years, Wisconsin's per capita income has slipped to 95% of the national average," which is where it remains today. The report also contrasted Wisconsin with its neighbor to the west, saying that "with a culture and climate much like our own, Minnesota's per capita income is well above the U.S. average; the income gap between Minnesota and Wisconsin is nearly $4,000 per person, and widening."

Given these longstanding trends, blaming Scott Walker for the current gap between Minnesota and Wisconsin incomes makes as much sense as chastising newly acquired pitcher Kyle Lohse because the Brewers haven't won a pennant since 1982.

Wisconsin has been hampered by a poor business environment for decades, but this environment improved sharply after Gov. Walker and the Republicans took control of government. In 2010, Wisconsin ranked 41st among states in terms of business favorability, but its ranking jumped to 24th after the reforms of 2011. The state's ranking continued to improve to 20th in 2012 and 17th in 2013. Wisconsin citizens agree that conditions are improving, as a recent survey found 56% residents saying that the state is heading in the right direction. This positive momentum undercuts the myth progressive groups are peddling that Wisconsin's "reputation has eroded," and that it no longer enjoys an image as stable place to do business.

So if the state's business environment is getting better, where are the jobs? Gov. Walker famously promised to create 250,000 jobs during his term in office, and it looks like this will not come to pass. He will have to answer for this when he faces the voters, and he should, but several factors help explain why the state's job growth has not met the governor's expectations.

One is that employment is a lagging indicator of economic health. In any economic recovery, business output and sales increase first, and companies expand their hiring only after they have confidence the economic expansion will be maintained and they need to add workers to meet increasing workloads. The governor may therefore have been too optimistic about the timing, rather than the magnitude, of job gains expected to result from his policies.

Another factor is that three of Wisconsin's top five economic sectors involve the paper and printing industries. The fortunes of these companies depend on newspapers, which are struggling as news is increasingly communicated digitally. There is little that Scott Walker or any governor can do to slow this trend, and the massive amount of "sunk" capital invested in these industries limits the ability of Wisconsin manufacturers to pivot or adapt to changing conditions.

Madison is also Wisconsin's second-largest city, and its cumbersome regulation and "anti-development attitude" are increasingly recognized as harmful to economic and employment growth. In fact, while Wisconsin's overall business environment has been improving, Madison's has fallen from number five on Forbes' list of "Best Places for Business and Careers" in 2003 to number 89 ten years later. Despite Madison's many obvious resources, local government's ambivalence and, at times, outright hostility to economic development tend to undermine job creation.

Finally, let's not forget the protests. Business leaders like stability, and they're unlikely to invest money or hire new workers when times are chaotic, as they were in Wisconsin through the June 2012 recall elections. Most business people don't believe it's extreme to ask public employees to contribute to their health care and pension costs. But having the opposition party run off to Rockford, protesters living 24/7 in the Capitol, and 15 statewide recall elections compared with four in the preceding 163 years -- now that's extreme.

Act 10 was well within the mainstream of recent cost-cutting reforms proposed by governors of both parties, but Wisconsin was the only state that responded by going berserk. The fallout from the protests ended just 13 months ago, and the semblance of normalcy back at the Capitol should support the employment outlook.